Pay secrecy clauses banned from 7 June 2023

It is common for employment contracts to include a clause to the effect that the terms of the contract constitute ‘confidential information’ and as such must not be disclosed to anyone (other than, for example, the employee’s legal or tax advisors). Many businesses have chosen to include a clause of this kind in their contracts to stop employees discussing their remuneration with co-workers.

That practice will not be permissible for much longer. From 7 June 2023, it will be unlawful for an employer to include a “pay secrecy clause” in an employment contract. A “pay secrecy clause” is a clause that prohibits (or limits) an employee from disclosing their remuneration to someone else, or asking someone else about their remuneration.

The prohibition applies to all employment contracts entered into after 7 June 2023. An employer that enters into an employment contract after 7 June 2023 which contains a pay secrecy clause will commit a breach of the Fair Work Act and will be exposed to having to pay civil penalties.

With respect to existing employment contracts that contain a pay secrecy clause, it is not necessary for employers to roll out a replacement contract to existing staff prior to, or after, 7 June 2023. However, whether those employees need to comply with their pay secrecy obligations depends on when their contract was entered into.

If an employee entered into their contract before 7 December 2022, they will be bound by the pay secrecy clause until such time as their contract is varied or they are issued with a new contract. Once either of those things happens, the pay secrecy clause will automatically cease to apply (although the other terms in the contract will continue to do so).

Importantly, adjusting an employee’s remuneration will have the effect of varying their contract. From the point in time that the pay review takes effect, the employer will no longer be able to enforce any pay secrecy clause in the employee’s contract

If an employee entered into their contract after 7 December 2022 but before 7 June 2023, the employee was not required to comply with any pay secrecy clause in their contract on and from 7 December 2022. Any upcoming pay review process will not alter the status quo, i.e. the employer will continue to not be able to enforce any pay secrecy clause in the employee’s contract.

Once employees cease to be bound by a pay secrecy clause in their contract, or are issued with a new employment contract, they will also gain a specific legal right to discuss their remuneration arrangements with co-workers, friends, family members or anyone else.

This is a new “workplace right” for the purposes of the Fair Work Act, which means that an employer will breach the Fair Work Act if it engages in “adverse action” because an employee publicly discusses their remuneration. Adverse action includes dismissing an employee, denying them a promotion, or worsening their terms and conditions of employment in some way.

Businesses should review their employment contract templates to identify whether they contain a “pay secrecy clause”. If they don’t, no further steps are required.

If the template contract does contain a pay secrecy clause, the contract will need to be amended to remove the clause before being issued to new employees.

There is no need to roll out replacement contracts to existing staff which omit a pay secrecy clause. However any upcoming remuneration review process will automatically lead to employees gaining a new legal right to discuss their pay publicly, and any pay secrecy clause in their existing contract ceasing to have any effect. From that point there will be nothing businesses can do to prevent employees from discussing their remuneration with co-workers.

This article provides general commentary only. It is not legal advice. Before acting on the basis of any material contained in this article, seek professional advice.

Our workplace team advises and represents clients in all areas of employment and industrial law, from day-to-day advice to support on specific issues.

We’ve helped our clients achieve their goals by structuring commercially effective workforce arrangements which protect intellectual property, confidential information, business contacts and goodwill. We also advise on disciplinary issues including misconduct, performance management, workplace grievances, bullying and discrimination, and have assisted with confidential legal investigations.

Find out how our expert workplace team can assist your business.